Trump Media, Reddit surge despite questionable profit prospects, taking on the 'meme stock' mantle

Reddit and Trump Media are the first notable social media companies to begin trading publicly in the last five years. They're also, thanks to the rabid reception among investors coupled with the companies' fuzzy profit outlooks, the latest meme stocks.

Meme stocks are typically shares in companies whose underlying business fails to justify a surge in their price. The action is often driven by small investors who for some reason pile into a stock, be it belief that a struggling company can turn itself around, a disdain for so-called short sellers — or fidelity to a former president. Or simply opportunism.

Reddit's initial public offering last week was the most anticipated debut so far this year, and it didn't disappoint, rising 48% on the first day. The stock gained an additional 30% Monday.

Then Trump Media stole Reddit's thunder by jumping as much as 59% on its first day of trading Tuesday, before cooling off and closing with a gain of 16%. On Wednesday, the stock gained an additional 14% to close at $66.22. Former President Donald Trump holds a majority stake in Trump Media that could bring him billions.

Analysts and academics are comparing the surge in Reddit and Trump Media to the meme stock craze in 2021 that boosted shares of companies such as video game retailer GameStop and movie theater operator AMC Entertainment. Although there are differences between the two groups, the companies did have two prominent similarities: It was hard to look at the financials and predict a path to long-term profitability. But small investors bought in nonetheless.

Trump Media lost $49 million in the first nine months of last year, when it took in just $3.4 million in revenue and had to pay $37.7 million in interest expenses. In